(File:USA Population Pyramid.svg - Wikimedia Commons) The Baby Boomer generation (Americans born 1946–1964) is an enormous cohort now moving into retirement. They number roughly 73 million people, making boomers one of the largest generations in U.S. history (By 2030, All Baby Boomers Will Be Age 65 or Older). Starting in 2011, about 10,000 boomers have turned 65 each day, a trend that continues until 2030 when all boomers will be at least 65 years old (By 2030, All Baby Boomers Will Be Age 65 or Older). This “gray wave” is rapidly swelling the ranks of seniors: there are currently about 62 million Americans age 65 or older (nearly 18% of the population, up from 12% in 2000) (U.S. centenarian population is projected to quadruple over the next ...) (By 2030, All Baby Boomers Will Be Age 65 or Older). In 2000, there were 3.6 working-age adults (25–54) for every person 65+; today that ratio has fallen to only about 2.2 workers per retiree, and it’s still dropping (Why retiring Baby Boomers may make it harder to lower inflation). In short, the U.S. population is aging fast, led by the retirement of the massive Baby Boomer generation.
After decades in the workforce, Baby Boomers have accumulated significant savings overall. As a group, boomers held approximately 50% of all U.S. household wealth – about $78 trillion in assets – as of the early 2020s (More Than Half of US Wealth Belongs to Baby Boomers: Will Other Generations Catch Up? | Nasdaq). This wealth includes retirement accounts, investments, real estate, and other assets. During their peak earning years (mid-40s to mid-60s), boomers were avid savers, pouring money into 401(k)s, IRAs, stocks, and bonds to prepare for retirement. In fact, the boomer generation “has started to retire with a record $76 trillion in net worth,” as market analyst Ed Yardeni noted (Baby Boomers Are America's Secret Weapon for Fending Off Recession - Business Insider). These hefty savings formed a large pool of capital in the economy.
Now, however, boomers are shifting from accumulating assets to drawing them down. As they retire, many begin tapping their 401(k) balances, liquidating investments, or spending down savings to fund their lifestyles. Retirees still consume goods and services – often spending on travel, healthcare, leisure, and more – but they no longer add new savings into the financial system. As Yardeni observed, boomers are spending on “restaurants, cruises, traveling and healthcare” as they transition into retirement (Baby Boomers Are America's Secret Weapon for Fending Off Recession - Business Insider). In practical terms, a typical retiree might start withdrawing around 4% (or more) of their nest egg each year for living expenses. With millions of boomers retiring annually, this amounts to a huge outflow from retirement accounts and banks into the economy.
It’s important to note that not every boomer is a millionaire – far from it. Many will rely heavily on Social Security and may have relatively modest savings. (One study of the youngest “peak boomers” born 1959–1964 found a median retirement savings of about $225,000, and over half of that subgroup have under $250,000 saved () ().) Those with smaller nest eggs will primarily depend on fixed incomes like Social Security – meaning the government must support them – while those with large portfolios will be withdrawing funds regularly. Either way, boomers as a whole have switched from being net savers to net spenders. In fact, economists note that the boomers’ household saving rate is now turning negative as this generation exits the workforce (Why retiring Baby Boomers may make it harder to lower inflation).
Why do these savings matters for the broader financial system? In economics, retirees’ savings constitute part of the supply of loanable funds – the money available in banks and capital markets that gets lent out or invested. When boomers were in their prime working years, they were continually adding to this supply. Banks flush with boomer deposits could turn around and lend money easily. Investment funds had ample cash from boomer contributions to buy bonds, fund businesses, and finance government debt. This abundance of capital helped keep interest rates low for many years, since money was plentiful and lenders/investors were eager to put it to use.
Geopolitical analyst Peter Zeihan emphasizes how unique the Boomer era was for capital formation. “When you’re 45 to 65, that is where all private capital comes from… The largest generation we’ve had in human history are the baby boomers,” Zeihan explains (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics) (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). He notes that from roughly 2000 through 2020, almost all U.S. boomers were in that high-saving age bracket. As a result, capital availability – in the U.S. and globally – was the highest it had ever been, and capital costs (interest rates) were the lowest they had ever been (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics) (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). In other words, the Boomer saving boom created a glut of lendable money. Banks, Wall Street, and investors had to innovate just to deploy all that capital, and borrowers enjoyed historically cheap loans.
Now this situation is rapidly changing. As boomers retire en masse, they are withdrawing money instead of contributing it, causing the supply of available capital to tighten. Zeihan puts it bluntly: “The vast majority of baby boomers are now retired, and the rest of them will leak out of the system over the next few years, which means their capital is gone. It’s been turned into low-velocity investments like T-bills and cash… Bottom line, there’s not nearly as much free capital available.” (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). The generation behind them, Gen X, is much smaller, and the next large cohort (Millennials) won’t hit their peak saving years until the 2030s (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). This creates a gap. Fewer working-age people are contributing to savings, just as a huge group is pulling money out.
In practical terms, banks may see slower growth (or declines) in deposits from retirees. Likewise, investment funds that once counted on boomers’ contributions now see net withdrawals. The pool of loanable funds shrinks or grows more slowly, which makes money scarcer for borrowers. One immediate effect is that financial institutions must compete harder to attract savings or other sources of funds – for example, by raising interest rates on deposits to entice savers, or by offering higher yields on bonds to attract investors. We’re essentially moving from an era of capital plenty to an era of capital scarcity as this demographic shift progresses.
Interest rates in the economy are fundamentally a price: the price of borrowing money. That price is set by supply and demand. When the supply of savings (“loanable funds”) goes down, all else being equal, the price of money goes up – i.e. interest rates rise. We are already seeing this dynamic play out. Over the past few decades (1980s through 2010s), global interest rates trended downward, reaching exceptionally low levels by the 2010s. While many factors contributed to this, a huge one was demographics. The massive Boomer generation in the U.S. (and similarly large working-age populations in other countries like China) created a “savings glut”, flooding capital markets and keeping rates low (Why retiring Baby Boomers may make it harder to lower inflation). Now, with boomers aging and retiring, that tailwind is reversing into a headwind. As Axios economics writer Neil Irwin noted, “the super-sized Boomer generation has spent decades accumulating assets... creating a savings glut… With the youngest of the generation now 58 and the oldest 77, those trends may be in the process of reversing, with millions flowing out of the labor force and their savings rates turning negative.” (Why retiring Baby Boomers may make it harder to lower inflation) In short, the demographic forces that once pushed interest rates down are now working to push interest rates up.
Another way to look at it: The U.S. is seeing lower growth in its supply of savings at the same time as there is still strong demand for borrowing. In fact, demand for capital may be rising in certain areas – for instance, businesses reshoring factories (which requires investment), or importantly, the U.S. government financing deficits. Retiring boomers don’t just impact private savings; they also affect public finances. As boomers leave the workforce, they pay far less in taxes, yet they are drawing more in benefits like Social Security and Medicare. This has opened a large gap in federal budgets. Peter Zeihan points out that boomers effectively “built a social welfare state for themselves that they never had any intention of paying for…two-thirds of them are retired. They’re taking their money, they’re going home. The taxes that they’re paying have dropped off, and we are left with a welfare state to fund their retirement without their income to pay for it all.” (Geopolitical Expert Peter Zeihan Says Aging Americans Built a ‘Social Welfare State’ for Themselves Without Paying for It — Now the US Will Have ‘Massive’ Deficits as Long as Boomers Live | Moneywise). The result, he warns, is “massive, multi-trillion-dollar deficits every single year…locked in as long as the boomers live” (Geopolitical Expert Peter Zeihan Says Aging Americans Built a ‘Social Welfare State’ for Themselves Without Paying for It — Now the US Will Have ‘Massive’ Deficits as Long as Boomers Live | Moneywise). In fiscal 2024, for example, the U.S. federal deficit jumped to around $1.8 trillion (Geopolitical Expert Peter Zeihan Says Aging Americans Built a ‘Social Welfare State’ for Themselves Without Paying for It — Now the US Will Have ‘Massive’ Deficits as Long as Boomers Live | Moneywise), and trillion-plus annual deficits are projected for years to come.
Those deficits translate into heavy government borrowing, which adds to the overall demand for loanable funds just as the supply from private savings is tightening. The government must offer higher interest rates on Treasury bonds to attract buyers, especially if domestic savers are fewer and foreign investors also face their own demographic shifts. It becomes a classic squeeze: more borrowing needs (from government and businesses) chasing a smaller pool of available capital. This imbalance puts upward pressure on interest rates across the board – from Treasury yields to corporate bonds to mortgages.
Indeed, since the COVID-19 pandemic subsided, the U.S. has seen interest rates climb sharply off their historic lows. The Federal Reserve raised short-term rates to combat inflation, but longer-term yields (like 10-year Treasury rates and mortgage rates) have also risen in part due to market forces and expectations that capital will not be as cheap as it was in the Boomer-saving era. The Federal Reserve itself acknowledges that structurally higher rates may be needed to balance the economy now. With fewer workers (thanks to retirements) and strong consumer demand, inflation pressures have been harder to tame (Why retiring Baby Boomers may make it harder to lower inflation) (Why retiring Baby Boomers may make it harder to lower inflation). An aging population can mean slower labor force growth and lower productive capacity, so if retirees keep spending, it can lead to too much money chasing too few goods – a recipe for inflation (Why retiring Baby Boomers may make it harder to lower inflation) (Why retiring Baby Boomers may make it harder to lower inflation). The Fed, therefore, must keep monetary conditions tighter (higher rates) to prevent the economy from overheating as the demographics change.
All the above factors suggest that the era of ultra-low interest rates is likely behind us, at least until the demographic landscape shifts again. Peter Zeihan argues that we have entered a new era of higher capital costs that could last another decade or more. With boomers’ outsized capital no longer flooding markets, and the next big savers (millennials) not yet in their peak earning years, the financial system is adjusting to a leaner supply of money. Zeihan predicts we should “not expect rate cuts probably at all… If anything, rate increases for the next 2 to 5 years” (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics) (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). In his view, it may well be the mid-2030s before the U.S. sees a significant easing in interest rates, when a younger generation finally enters its prime saving years (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). “When people say ‘higher for longer,’ they may be thinking about another quarter or two… But I say until we have another large capital generating class in their 50s… higher [rates] for another decade before we see any appreciable relief in capital costs,” Zeihan concludes (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics).
What does this mean for consumers and the economy? Borrowers will need to adjust to the reality that the rock-bottom interest rates of the 2010s (such as 3% mortgages or near-zero savings yields) were an anomaly. Rates are now closer to historical norms – and could stay elevated or even rise further if capital becomes scarcer. Lenders and investors, on the other hand, may benefit from higher yields but could face higher risks if economic growth slows under the weight of more expensive credit. The shift also means the financial industry may need to refocus; there was an entire generation of financial practices built around abundant cheap capital, and that will evolve as capital becomes dearer.
For individuals planning their finances, it’s a reminder that demographics can influence market conditions. If you’re looking to take out a loan (for a home, business, etc.), today’s rates might be as good as it gets for a while. As Zeihan quips, “if you’re going to borrow, do it now. Because even today… this is still the cheapest capital you’re going to be able to access until the mid-2030s.” (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics). While no one can predict interest rates with certainty, the underlying demographic trend is clear: the Baby Boomer retirement wave is here, and it’s reshaping the financial landscape. Fewer savers and more spenders mean the plentiful capital of yesterday is giving way to a tighter money environment. In the coming years, we can expect the upward pressure on interest rates to persist, fundamentally driven by this massive demographic shift that is unprecedented in American history.
U.S. Census Bureau – By 2030, All Baby Boomers Will Be Age 65 or Older (By 2030, All Baby Boomers Will Be Age 65 or Older) (By 2030, All Baby Boomers Will Be Age 65 or Older)
U.S. Census Bureau – Population 65+ Statistics (By 2030, All Baby Boomers Will Be Age 65 or Older) (U.S. centenarian population is projected to quadruple over the next ...)
Axios (Neil Irwin) – How an aging population makes inflation worse (Why retiring Baby Boomers may make it harder to lower inflation) (Why retiring Baby Boomers may make it harder to lower inflation)
Federal Reserve / Visual Capitalist – U.S. Wealth by Generation (Boomers ~$78 trillion) (More Than Half of US Wealth Belongs to Baby Boomers: Will Other Generations Catch Up? | Nasdaq)
Business Insider (Ed Yardeni comments on $76 trillion boomer net worth) (Baby Boomers Are America's Secret Weapon for Fending Off Recession - Business Insider)
Protected Income Study – Peak 65: Boomer retirement savings median () ()
Peter Zeihan – Much Higher Interest Rates for Much, Much Longer (video transcript) (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics) (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics) (Much Higher Interest Rates for Much, Much Longer - Zeihan on Geopolitics)
Peter Zeihan via Moneywise – on Boomer welfare state and deficits (Geopolitical Expert Peter Zeihan Says Aging Americans Built a ‘Social Welfare State’ for Themselves Without Paying for It — Now the US Will Have ‘Massive’ Deficits as Long as Boomers Live | Moneywise)